What’s Included in the Price of Fuel

What’s Included in the Price of Fuel

Have you ever wondered why gas prices fluctuate so much? Thought fuel prices rise before a long weekend? There are many steps between getting crude oil out of the ground and getting it into your gas tank that all affect the price of fuel. You deserve to know why you pay what you do for the gas in your car.

The Canadian Fuels Association state that there are four main factors that affect gas prices.

  1. The Price of Crude Oil
    The global commodity price of crude oil affects fuel prices. Crude oil traders determine the supply and demand of crude oil which is based on many factors ranging from geopolitical events and the state of the global economy.
  2. Wholesale Price of Gasoline
    The wholesale price of gasoline can be affected by supply and demand caused by world events. Then, if the wholesale price rises, the price you and I pay will also rise.
  3. Retail Operating Costs
    Fuel retailers need to cover their own operating costs and make a profit to stay in business. They also need to stay competitive with their neighbours -- for this reason, the fluctuation of gas prices is not as extreme as it could be. The CFA states that “the average mark-up in Canada has remained virtually unchanged for 20 years, and has actually dropped when inflation is taken into account.”
  4. Taxes
    Approximately 31% of the price of gasoline is due to taxes. And, every province can charge different taxes on gas. Prices in Alberta might be lower than prices in BC.

Gas Prices & The Seasons

As for gas prices rising before a long weekend? It’s often unlikely. A seasonal phenomenon, however, does see gas prices rising and falling with the seasons.

“It is also well established that wholesale gasoline prices rise with that same seasonal pattern; a result of greater strains upon the balance between fuel supply and fuel demand. This is not simply a Canadian phenomenon: the seasonality of wholesale gasoline prices can be seen across North America as well as in Europe.” - The Kent Group

Day-to-day Gas Price Fluctuation

You might have also noticed that gas prices can fluctuate from day to day. This quick-change in gas prices doesn’t necessarily depend on the four main factors mentioned above. Price swings happen when retailers compete with each other, each trying to match or charge less than the other to entice customers.

The change in prices can also be a reflection of the wholesale price that gas stations pay their supplier which can change on a daily basis. That being said, however, gas stations buy gas in bulk from their supplier -- it is less likely that this change in wholesale price will affect gas prices changing daily.

Diesel Fuel

Diesel fuel demand is often from those working in industries that deal with transportation and heavy-duty equipment like long-haul truck drivers or farmers. This means companies like trucking fleets will negotiate a diesel contract with a supplier. Typically, this will foster consist pricing with little fluctuation in a season.

The takeaway: Gas stations are often not to blame for fluctuating prices. The average company who supplies fuel to the consumer has to account for many factors outside of their control when determining the price of gas.

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